Minn.'s frigid climate a selling point for data storage industry

On the sixth floor of a Duluth office building, rows of black computer servers store huge amounts of information. One of two data centers for the big regional health system, Essentia Health, the site stores thousands of medical documents like MRI images and digital mammograms.

But the computers generate so much heat that the air conditioners are running, even on a frigid December day.

This week an Iowa company begins construction on a $12 million data center in Duluth, a high-tech computer warehouse where area companies can store their data. State officials hope the development is a sign that more server farms will put down roots in Minnesota where they can rely far less on air conditioning than in other parts of the United States.

For the data storage industry, the state's frigid climate is a selling point.

"We've outgrown mainly the power and cooling in these data centers," said Dennis Smith, Essentia's director of technology systems. "As these systems get more dense, hotter, we had to do something."

Essentia is moving some of its data into the new center, being built by Involta of Cedar Rapids, Iowa. It plans to lease storage capacity to companies like Essentia around the region.

"It allows us to take advantage of the outside air temperatures, such that we'll only have to use our mechanical cooling systems we think about 10 to 14 days out of the year," he said.

That can amount to enormous cost savings. But Lehrman said the new data center will still consume lots of electricity.

"This first phase will use as much power as a small town, in a little under 10,000 square feet of space," he said.

That points to of Duluth's selling points, said Rob West, president of the private economic development nonprofit APEX.

"Our power costs here in this region are in the bottom 10 percent of the country," West said. "So when you've got low-cost power and cool temperatures, attracting data centers is a core strategy."

Duluth also boasts a rapidly growing broadband network, and an out-of-the-way location that enhances security.

Local officials say those assets make Duluth fertile ground to grow server farms, even if they aren't huge employers. Involta's new facility will only employ seven to ten people to start.

But local officials covet the construction jobs they generate, and the high-value buildings that add to their tax base.

Elissa Hansen, business development director, for APEX, predicts that Twin Cities companies will increasingly turn northward to locate their backup data centers.

"You're within driving distance, but you're far enough away that if something happens to your facility down there, you've got 100 percent backup up here, with the same kind of fiber that's able to connect you nationally," she said.

That broadband capacity to connect nationally has Duluth thinking big. Hansen is shooting for big tech companies like a Google or a Facebook.

But to lure those companies, Hansen said, the region has to be able to offer what's known as a "dark fiber ring," where the companies have exclusive use of strands of the fiber optic cables linking Duluth and the Twin Cities. The owners of the fiber cables would have to sell part of them to new users.

Hansen said that would put Duluth "on the map for every gamut of data center that would be out there." She said the region may be able to offer that capability by March.

But while Iowa-based Involta found Duluth attractive, Minnesota's advantages haven't been enough to lure the largest players.

"We discovered that we had lost some data centers that might have considered Minnesota," said Mark Lofthus, director of business and community development at the Minnesota Department of Employment and Economic Development.

The facilities include centers for Yahoo in Omaha, Neb; Microsoft in West Des Moines, Iowa; and Google in Council Bluffs, Iowa.

Those states also offer plenty of cold weather but also provide hefty tax incentives.

The tax break was included in last summer's budget bill, but not without reservations from some lawmakers, including state Rep. Diane Loeffler, DFL-Minneapolis.

"I had a concern that first of all it didn't seem to create a lot of direct jobs," Loeffler said. "But second of all, why would we pick this particular industry versus all the small businesses in particular that were struggling with the economy for some tax advantage?"

But there are signs the incentive is working. Last month, a North Carolina company called Five 9s Digital announced the first facility to take advantage of the new tax break, a $75 million project in Eagan, Minn.

Business leaders and legislators also have discussed extending the subsidy to smaller projects, so that data centers like Involta's in Duluth would also qualify.